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Why Ericsson, Humana, and LPL Financial Slumped Today

Even though the market held up reasonably well, these stocks fell. Find out why.

The stock market was narrowly mixed on Wednesday, with minimal gains for most major market benchmarks centering on the latest release of minutes from the Federal Open Market Committee's September meeting. The meeting of central bankers essentially confirmed the consensus view among investors that the Fed's decision not to raise interest rates last month was a near-miss, and investors should therefore prepare for a likely boost at the December meeting. Yet even though the market overall didn't respond very strongly to that news, some stocks didn't manage to hold up nearly as well as the broader stock market. Among the worst performers on the day were Ericsson (NASDAQ:ERIC), Humana (NYSE:HUM), and LPL Financial (NASDAQ:LPLA).

Ericsson expects tough times ahead

Ericsson plunged more than 20% after the telecom company warned that its sales for the third quarter would be significantly lower than it had previously expected. The company said that revenue likely dropped 14% during the third quarter, and it pointed to emerging markets as particularly weak, citing Brazil, Russia, and the Middle East as being among the poorest performing areas. European sales also suffered as a result of the completion of various projects last year that Ericsson wasn't able to replace. Even though the company is trying to reduce its expenses to make the most of its sales, investors are skeptical that Ericsson will be able to produce enough cost reductions to offset the downward impact of falling overall revenue. With rising competition and deteriorating industry fundamentals, Ericsson will have to work harder to convince shareholders that better times lie ahead.

Humana suffers from Medicare ratings

Humana fell 5% in the wake of Medicare's announcements regarding its star-rating system for health insurance for the 2018 plan year. Humana said that just 37% of its members were in plans that fetched four stars or more under the new ratings, down by more than half from the 78% of members in four-star plans in the previous year. The company said that it believes that the recent comprehensive program audit that Humana just received from the Centers for Medicare and Medicaid Services was largely responsible for the drop, noting that the monetary penalty Humana had to pay resulted in automatic downgrades to one of the star measures. Interestingly, Humana also boosted its financial guidance for the 2016 fiscal year, noting that its Medicare Advantage business has performed better than it initially anticipated. Nevertheless, investors focused on concerns that ongoing Medicare-related weakness could hit the insurer harder than they had previously expected.

LPL Financial deals with disappointment

Finally, LPL Financial fell 5%. The company had advanced by nearly 7% on Tuesday in the wake of takeover speculation that could result in the sale of the broker-dealer and registered investment advisory company. Yet further analysis of a possible sale suggested that it could be difficult for a buyer to deal with the regulations surrounding broker-dealers and registered investment advisors, especially in the wake of recent Department of Labor rules that will dramatically change the responsibilities of those who manage retirement funds. Without the right partner, LPL Financial could end up losing all the ground it gained after the possibility of a buyout surfaced.

Dan Caplinger has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Author

Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on Fool.com. With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.
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